7. Registrar Processing IPO Applications
1.17. Statement of the problem
The Indian capital market has witnessed a drastic change in recent years as a result of economic liberalisation in the country. This includes abolishing the regulated regime under the Controller of Capital Issues (CCI) and establishing the Securities and Exchange Board of India (SEBI) as the market monitor in 1992. The technological advancements, regulatory controls, increased investor base has brought a new equity culture in India, which is still developing continuously. Indian capital market is perceived by investors, whether local or global, as a new opportunity to earn high returns. The research statistics have proven that in the Indian financial markets, equity instruments provide higher returns in long period as compared to other traditional forms of investments such as fixed deposits and gold. Thus there is a continuous increase in the tendency of investors to make investments in equity by taking more risk in order to earn huge returns from the stock market. Capital market is considered as the best opportunity to fulfill the dreams for retail investors since the Indian economy is considered as one of the most developing economy in the whole world. The sensitivity index as a barometer of the economy has been moving with amazing speed and has now reached at its historical heights. The whole world is astonished by the developments happening in the Indian economy and in its capital market. The money from different class of investors including foreign institutional investors, qualified institutional investors and retail investors is now flooding in to the stock market. Along with the secondary market, the primary market is also attracting the investor’s interest to invest their money in IPO’s as well as the corporate perceive it as a reasonably reliable source of raising of funds in a scenario of highly volatile
interest rates in the economy. At the end, both entities seem to be the winners of the game. The maturity of the capital market increases with the age and no doubt it will soon reach the dream heights in the future.
The gold and fixed deposit investment culture up to the early nineties in India has changed and now we have seen the new equity culture in the Indian capital market. Primary market in India has emerged as a most promising investment opportunity. Similar to most developed countries, presently, the IPO process in India requires a company to file its draft prospectus with SEBI through an eligible merchant banker prior to filing it with the Registrar of Companies. However, unlike many developed countries, where large numbers of companies do not get listed, the Indian primary market witnessed a large number of listings in the mid-1990s. From 1993 to 1996 alone, more than 1,500 companies went public in India, from all sectors of the economy and from different ownership groups (e.g., private stand-alone companies, business groups, and government-owned companies). Changes in the listing guidelines over the entire decade transformed the Indian primary market. Many of the investors may perceive the primary market as a new bubble but others take it as opportunities to make profits. Meanwhile the primary market has also suffered through IPO scam in 2005, where a single investor has multiple demat accounts. Although the PAN no is made compulsory in equity trading, still the craze of IPO exists in India, given experience of MS shoe, CRB etc. But still the IPO market is on. Investors perceive it as a comparatively safe avenue to make money as most of the time investors have the experience of having higher returns on the listing day of the security. Different researchers claim that the Indian IPO’s are under priced, and in such a scenario we also have the experience when the closing price of a security moves down to the extent that it now less than the issue price on the very first day of listing. Even if the IPO is oversubscribed many times, the returns are not assured. Here some questions normally arise in the mind of investors. These are:
• How is IPOs valuation done?
• What should be the time horizons on investments in IPOs?
• Which factors affects the IPO returns on the listing day and in the following period?
• How is an IPO investment analyzed and which theories / techniques are helpful in explaining the behavior of an IPO?
• What are the determinants of post issue returns of an IPO?
The above mentioned questions are answered in the coming chapters with the help of the results from analyzing the collected data.
If the market index is considered as the barometer of economy, the primary market is the barometer of business confidence. Finally, the problem of the study can be stated as: